On Our Radar

On Our Radar

Phoenix, Las Vegas Housing Markets Return to Average Growth -- Update

Home-price growth continued to accelerate in March, posing a challenge to the market, which already has seen the pace of sales slow because of rising prices and a shortage of inventory.

Continue Reading Below

The S&P CoreLogic Case-Shiller Indices, which covers the entire nation, rose 5.8% in the 12 months ended in March, up from a revised 5.7% year-over-year increase reported in February.

Home prices hit a record in September, and the pace of growth has accelerated since then. The national price-growth number hit a 33-month high in March.

The 10-city index gained 5.2% over the year, and the 20-city index gained 5.9%, both unchanged from February. That slightly beat the expectations of economists surveyed by The Wall Street Journal, who expected the 20-city index to rise 5.8% in March.

The accelerating gains are being driven by growing demand thanks to rising wages and a large demographic of people entering their 30s and looking to buy homes, as well as limited supply. Economists said they are concerned, however, that price growth that continues to outpace income growth isn't sustainable.

"While prices cannot rise indefinitely, there is no way to tell when rising prices and mortgage rates will force a slowdown in housing," said David Blitzer, managing director at S&P Dow Jones Indices.

Continue Reading Below

ADVERTISEMENT

The strong growth in prices also poses a challenge for first-time buyers trying to get into the market this year.

Still, home-price growth remains less than half of what it was during the housing bubble in the mid-2000s. Then prices grew by more than 14% for much of 2005.

Economists are concerned, however, about a handful of markets that have been seeing double-digit or near-double-digit growth. Seattle led the way in March with a 12.3% home-price increase, and Portland reported a 9.2% year-over-year gain. Dallas, which recently replaced Denver in the top three, reported a 8.6% annual increase in home prices.

Month over month, the U.S. Index rose 0.8% in March before seasonal adjustment, while the 10-city rose 0.9% and the 20-city index increased 1% from February to March.

After seasonal adjustment, the national index rose 0.3% month over month, and the 10-city and 20-city indexes rose 0.9%. After seasonal adjustment, 17 of 20 cities saw prices rise.

Overall the housing market is gaining strength, but there are signs price growth is starting to take a toll on buyer demand.

The pace of sales of existing homes fell 2.3% in April, as buyer frustration mounted over rising prices and a lack of homes for sale, the National Association of Realtors said last week. New home sales dropped 10.4% last month due to similar challenges, according to the Commerce Department.

Write to Laura Kusisto at laura.kusisto@wsj.com

In another sign the U.S. housing market is returning to normal, Las Vegas and Phoenix -- poster children of the bubble and bust -- are looking average.

The S&P CoreLogic Case-Shiller Indices, which covers home-price fluctuations in the entire nation, rose 5.8% in the 12 months ended in March, the fastest rate in 33 months.

The price increases were in line with price growth in the country's biggest boom-bust markets. Home prices in Las Vegas rose 6.4% over the year, while those in Phoenix rose 5.6%, according to Case-Shiller.

The relative steadiness comes after a 15-year stretch when the two markets were leaders of the U.S. housing bubble, bust and recovery, helping pull the national averages up, down and up again.

"In the boom and the bust they were clearly the incredibly hot spots," said David Blitzer, managing director at S&P Dow Jones Indices. "They're no longer so outstanding and unusual."

Their falls were almost as dramatic. Las Vegas home prices posted a 33% annual decline in December 2008 while Phoenix prices plummeted 36% a few months later, on an annual basis.

Investors bet on Las Vegas and Phoenix during the last housing boom, expecting aging baby boomers to flock to the Sunbelt states. Relatively affordable home prices also made it easy for people with middle-class salaries to snap up second or third homes. But the availability of land meant there were few constraints on new construction, leading to a bigger crash.

Despite the strong rally of the past five years, neither city is close to its previous peak. Las Vegas prices remain a third below their 2006 high while Phoenix prices remain 27% below.

The distance from the previous peak isn't necessarily the best measure of health, since both markets likely were overvalued.

"It should be no surprise that it would take them a long time to get back there, if ever," Mr. Blitzer said. "There are things that don't come back, or don't come back in less than a generation."

Today, the new booming markets look comparatively restrained, and areas where price gains are concentrated are generally ones with strong job growth and limited supply, not speculative investment and overbuilding.

Across the country, Seattle led the way in March with a 12.3% home-price increase. Portland reported a 9.2% year-over-year gain and Dallas, which recently replaced Denver in the top three, posted an 8.6% annual increase.

After seasonal adjustment, 17 of 20 cities saw prices rise in March.

Nationally, home-price growth remains less than half of what it was during the housing bubble in the mid-2000s. Back then, prices increased by more than 14% for much of 2005.

Overall, the housing market is gaining strength, but there are signs that price growth is starting to take a toll on buyer demand. The pace of sales of existing homes declined 2.3% in April as buyer frustration mounted over rising prices and a lack of homes for sale, the National Association of Realtors said last week. New home sales declined 10.4% last month due to similar challenges, according to the Commerce Department.

There are reasons for concern, economists said. Home prices in the past year rose roughly three times faster than incomes. Mortgage rates, which last week averaged 3.95% for a 30-year loan, are expected to rise closer to 4.5% toward the end of the year, which could further hurt affordability.

Las Vegas is seeing some bidding wars and price rises that are faster than wage growth. But local Realtors said this time the boom in Las Vegas isn't being driven by speculative deals. Nevada led the way in job growth in 2016 after ranking last among the states in 2009 and 2010, according to a survey by Gallup.

Most homes on the market for less than $300,000 are receiving multiple offers, with some receiving as many as 10 bids, said David Tina, president of the Greater Las Vegas Association of Realtors.